N&P results out-perform market
Norwich and Peterborough Building Society (N& P) reported another good year in 2007 and a healthy financial position – strong profits, comfortable liquidity, very low credit losses and ample capital strength. These features will be important in the uncertain economic environment of 2008.Financial highlights:
Group pre-tax profit of £24.3m, up 20.3% (2006 £20.2m).
Total income grew by 10.3% to £83.5m, while costs grew by only 4.7%.
Net interest margin now 1.44% (2006 1.35%).
Non-interest income decreased by 5.8% to £26.2m (2006 £27.8m) and now represents 31% of total income.
Management expense ratio down 0.11% from 1.51% in 2006 to 1.40%.
Total mortgage assets up 12.9% to £3.2 billion with new mortgage advances of £974m (2006 £2.8 billion with advances of £809m).
At the year end, 8 properties in possession and 186 mortgage accounts more than three months in arrears, reflecting the Society’s careful and targeted lending approach.
Liquidity of £1.0 billion at the end of 2007, at 23.5% of total assets a very comfortable position despite the market’s recent difficulties.
Retail savings balances grew by 19.4% to £2.8 billion.
Total assets of the Group increased to £4.3 billion (up 17.4%).
Tier 1 capital increased by £18.1m to £205.2m (plus 9.7%). At the same time, as a result of our Basel ll accreditation, we managed to repay £15m of external Tier 2 capital.
Return on capital increased to 13.0% from 11.7%.
Overall customer numbers increased by 5.8%.
Comment: Matthew Bullock, chief executive, said: “2007 will be remembered for turning into an exceptionally turbulent year in financial markets. Despite this, it was our strongest performance yet, following a vintage year in 2006, which we then believed marked a high point.
“In part our success in 2007 was due to our using our Basel ll lending approach to target our mortgage lending precisely to avoid problems and poor returns. As the first UK firm to get the go ahead from the Financial Services Authority (FSA) to use this more advanced approach, we were able to take good advantage both in the very competitive first half of the year, and then in the more turbulent ‘credit crunch’ period that followed.
“Our expert financial planners, who are trained to give independent financial advice to customers through our branches, really ‘earned their corn,’ helping many more of our members plan their investments through the bad times as well as the good.
“Our attractive banking and deposit range also appeared steadily in national newspapers’ Best Buy tables as offering consistent, good value and, unlike some, we benefited in the second half from a ‘flight to quality’ by depositors. Customers were able to take comfort from the comments made by Moodys Investor Services, who commented on the Society’s ‘strong regional franchise, stable and sustained financial performance and low risk profile of its loan book’.”
Matthew continued: “Expert, friendly and well-trained staff means happy customers and I am also delighted to report that satisfaction levels among our customers again remain very high. 71% of customers surveyed in 2007 described themselves as ‘very satisfied’ and the Society’s membership overall grew by 5.8%.
“Looking forward, 2008 will be a challenging year, with a slowing mortgage and housing market and probably reduced economic growth as well. Being a mutual means, for us, not having to rush, and being able to take a long term view. An important benefit that flows from the steady diversification of our business in recent years is that we are not now so dependent on the mortgage market and this gives us the ability, even in these hard times, to keep investing in our branches, our staff and our service. We will be opening a new branch in Cambridge in March and expect to open more in the county over the next 12 months. Moving into the south of our region is an important long term opportunity for expansion.
“Quite apart from this business development programme and the increased investment it will require, we expect the harsher economic environment will affect our profitability for 2008. However, we still believe this is an important time to invest so that we safeguard our long term strength and can commit to service for members through what will be uncertain markets throughout 2008 and beyond.”